Adaptec 2002 Annual Report Download - page 19

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Gross Profit ($000,000)
2002 Change 2001 Change 2000
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Networking products $ 126.2 (28%) $ 176.1 (66%) $ 515.7
Percentage of networking revenues 59% 59% 77%
Non−networking products $ 2.3 (76%) $ 9.4 (27%) $ 12.8
Percentage of non−networking revenues 43% 42% 44%
Total gross profit $ 128.5 (31%) $ 185.5 (65%) $ 528.5
Percentage of net revenues 59% 57% 76%
Total gross profit for 2002 decreased by $57.0 million, or 31%, from gross
profit in 2001, which decreased by $343.0 million, or 65%, from gross profit in
2000.
Networking
Our networking gross profit for 2002 decreased by $49.9 million from 2001. The
decrease in networking gross profit related primarily to lower sales volume in
2002 compared to 2001 partially offset by a lower write−down of excess inventory
of $4.0 million in 2002 compared with a $20.7 million write−down of excess
inventory in 2001.
Our networking gross profit for 2001 decreased by $339.6 million from 2000.
Excluding the $20.7 million write−down of excess inventory in 2001, the decrease
in networking gross profit in 2001 related primarily to the reduced sales
volume.
While networking gross profit as a percentage of networking revenues remained
constant at 59% for 2002 and 2001, the following factors impacted the margin in
2002:
o a write−down of excess inventory in 2002 was $16.7 million lower than a
similar write−down in 2001, increasing gross profit by 8 percentage
points,
o reduced shipment volumes resulted in manufacturing costs being spread
over fewer units resulting in lowering gross margin by 5 percentage
points, despite reducing manufacturing costs by $3.9 million.
o a shift in mix from the higher margin networking products to those sold
into higher volume lower margin applications further reduced gross
profit by 3 percentage points.
Our networking gross profit as a percentage of networking revenues decreased 18
percentage points from 77% in 2000 to 59% in 2001. This decrease resulted from
the following factors:
o a $20.7 million write−down of excess inventory which lowered gross
profit by 7 percentage points,
o a shift in product mix towards lower margin products, which lowered
gross profit by 6 percentage points, and
o the effect of applying fixed manufacturing costs over reduced shipment
volumes which lowered margins by 5 percentage points.
Non−networking
Non−networking gross profit for both 2002 and 2001 decreased as a result of
declining sales volume. This product reached the end of its life in 2002.
18